-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bex6MSW4FFummI91bm1BhVB7EsjTjQf7ELeP++iOEkyiRg1KG0lN5nq+43Hntr7R fGTSFfyr1Xei2V6grO6ksQ== 0000950133-00-001484.txt : 20000412 0000950133-00-001484.hdr.sgml : 20000412 ACCESSION NUMBER: 0000950133-00-001484 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000512 FILED AS OF DATE: 20000411 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN MANAGEMENT SYSTEMS INC CENTRAL INDEX KEY: 0000310624 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 540856778 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 000-09233 FILM NUMBER: 598801 BUSINESS ADDRESS: STREET 1: 4050 LEGATO RD CITY: FAIRFAX STATE: VA ZIP: 22033 BUSINESS PHONE: 7032678000 DEF 14A 1 DEFINITIVE PROXY STATEMENT 1 SCHEDULE 14A (RULE 14A-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Under Rule 14a-12 AMERICAN MANAGEMENT SYSTEMS, INCORPORATED - -------------------------------------------------------------------------------- (Name of Registrant as Specified in Its Charter) N/A - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): (4) Proposed maximum aggregate value of transaction: (5) Total fee paid: [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. (1) Amount Previously Paid: (3) Filing Party: (2) Form, Schedule or Registration Statement No.: (4) Date Filed:
2 AMERICAN MANAGEMENT SYSTEMS, INCORPORATED 4050 LEGATO ROAD FAIRFAX, VIRGINIA 22033 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of AMERICAN MANAGEMENT SYSTEMS, INCORPORATED will be held at 4050 Legato Road, Fairfax, Virginia 22033 on Friday, May 12, 2000, at 10:00 a.m. local time, for the following purposes: To elect nine (9) directors to hold office until the next Annual Meeting of Shareholders of American Management Systems, Incorporated and until their successors are elected and qualified; and To transact such other business as may properly come before the meeting or any adjournment(s) or postponement(s) thereof. Only shareholders of record at the close of business on March 20, 2000, will be entitled to notice of, and to vote at, the meeting or any adjournment(s) or postponement(s) thereof. Shareholders are cordially invited to attend the meeting in person. IF YOU WILL NOT BE ABLE TO ATTEND THE MEETING IN PERSON, PLEASE INDICATE YOUR CHOICE ON THE MATTERS TO BE VOTED UPON, DATE AND SIGN THE ENCLOSED PROXY, AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. ALTERNATIVELY, YOU MAY VOTE BY TELEPHONE AT 1-800-840-1208. Instructions regarding telephone voting are included on the Proxy. BY ORDER OF THE BOARD OF DIRECTORS, Frank A. Nicolai Secretary April 12, 2000 3 AMERICAN MANAGEMENT SYSTEMS, INCORPORATED 4050 LEGATO ROAD FAIRFAX, VIRGINIA 22033 PROXY STATEMENT ANNUAL MEETING OF SHAREHOLDERS MAY 12, 2000 TABLE OF CONTENTS General..................................................................................1 Voting Procedure.........................................................................1 Election of Directors....................................................................2 Information Concerning Nominees for Director.............................................2 Information Concerning Executive Officers................................................7 Principal Stockholders...................................................................8 Section 16(a) Beneficial Ownership Reporting Compliance..................................9 Executive Compensation..................................................................10 Compensation Committee Report of Executive Compensation.................................12 Shareholder Return Performance Graph....................................................15 Committees and Compensation of the Board of Directors...................................16 Compensation Committee Interlocks and Insider Participation.............................17 Independent Public Accountants..........................................................18 Other Matters...........................................................................18 Proposals for 2001 Annual Meeting of Shareholders.......................................18 Annual Report...........................................................................19 American Management Systems, Incorporated 1999 Financial Report.................Appendix 1
4 GENERAL The enclosed Proxy is being solicited by the Board of Directors (the "Board of Directors" or the "Board") of AMERICAN MANAGEMENT SYSTEMS, INCORPORATED (the "Company" or "AMS") in connection with the annual meeting of shareholders of the Company to be held May 12, 2000 (the "Annual Meeting"), or any adjournment(s) or postponement(s) thereof. The entire expense of solicitation of proxies will be borne by the Company. Solicitation will be primarily by mail. However, directors, executive officers, and employees of the Company may also solicit by telephone or personal contact. The Company will reimburse brokers and other persons holding shares in their names, or in the names of nominees, for their expenses of sending proxy materials to beneficial owners and obtaining their proxies. It is anticipated that the Proxy Statement and Proxy first will be mailed to shareholders on or about April 12, 2000. Any shareholder giving a Proxy by mail or via telephone has the power to revoke it at any time before it is voted by giving written notice of revocation to the Secretary of the Company or by delivering a proxy in accordance with applicable law bearing a later date to the Secretary of the Company. If you attend the Annual Meeting, you may, if you wish, revoke your Proxy by voting in person. Proxies solicited herein will be voted, and if the person solicited specifies in the Proxy a choice with respect to matters to be acted upon, the shares will be voted in accordance with such specification. If no choice is indicated, the Proxy will be voted "FOR" the election of the nominees listed on pages 2 to 6 under the caption "Information Concerning Nominees for Director." VOTING PROCEDURE As of March 20, 2000, there were outstanding 41,488,828 shares of the Company's Common Stock, $0.01 par value per share (the "Common Stock"). Each share of Common Stock is entitled to one vote at the Annual Meeting. Only shareholders of record at the close of business on March 20, 2000 will be entitled to vote at the Annual Meeting. Votes cast in person or by Proxy at the Annual Meeting, abstentions and Broker Non-votes (as defined below) will be tabulated by the election inspectors appointed for such Meeting and will be counted for purposes of determining whether a quorum is present. Directors will be elected by the affirmative vote of the holders of a plurality of the shares present (in person or represented by Proxy) and voted on the election of directors at the Annual Meeting. Any other matter submitted to a vote at the Annual Meeting will be approved by the affirmative vote of the holders of a majority of the shares present (in person or represented by Proxy) and entitled to vote on each such matter. The election inspectors will treat abstentions on a particular matter as shares that are present and entitled to vote for purposes of determining the approval of such matter. Abstentions, therefore, will have the same effect as a vote against a particular matter. If a broker submits a Proxy indicating that it does not have discretionary authority as to certain shares to vote on a particular matter (a "Broker Non-vote"), those shares will not be treated as present and entitled to vote for purposes of determining the approval of such matter. 5 ELECTION OF DIRECTORS Nine directors are to be elected at the Annual Meeting, each to hold office until the next annual meeting of shareholders of the Company and until his or her successor is elected and qualified. The directors will be elected by the affirmative vote of the holders of a plurality of the shares present (in person or represented by Proxy) and voted on the election of directors. Unless otherwise directed, it is the intention of the persons named in the Proxy to vote such Proxy for the election of the nominees listed under the caption "Information Concerning Nominees for Director" on pages 2 to 6. All of the nominees are now directors of the Company. In the event that any nominee should be unable to accept the office of director, which is not anticipated, it is intended that the persons named in the Proxy will vote for the election of such other person in the place of such nominee for the office of director as the Board of Directors may recommend. Descriptive information as to each nominee is set forth below under the caption "Information Concerning Nominees for Director." THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL OF THE NOMINEES DESCRIBED BELOW FOR ELECTION AS DIRECTORS. INFORMATION CONCERNING NOMINEES FOR DIRECTOR
YEAR FIRST ELECTED NAME AGE POSITION DIRECTOR BACKGROUND ---- --- -------- -------- ---------- Paul A. Brands............. 58 Chairman of the 1992 Mr. Brands has served as Chairman of the Board of Board of Directors, Directors since December 1997 and as a member of Chief Executive the Board of Directors since October 1992. Mr. Officer, and Director Brands served as Vice Chairman of the Board of Directors from October 1992 to December 1997. He was designated Chief Executive Officer in September 1993. He supervised the Federal Consulting and Systems Group from 1977 to 1992; Data Base Management, Inc. from 1990 to 1992; and the Company's interest in Bell Atlantic Systems Integration Corporation from 1989 to 1992. Mr. Brands joined the Company in 1977. He also is a director of SAGA Systems, Inc., which is a public company.
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YEAR FIRST ELECTED NAME AGE POSITION DIRECTOR BACKGROUND ---- --- -------- -------- ---------- Patrick W. Gross........... 55 Chairman of the 1974 Mr. Gross is one of the Company's founders and Executive Committee has served AMS continuously as an executive of the Board of officer since 1970. Since December 1997, Mr. Directors, and Gross has served as Chairman of the Executive Director Committee of the Board of Directors, an office he also held from 1983 to 1989. He also served as Vice Chairman of the Board of Directors from February 1989 to September 1997. He is a director of Capital One Financial Corporation, Computer Network Technology Corporation, and Landmark Systems Corporation, all of which are publicly-held entities. He is also Chairman of the Board of Directors (a non-executive position) of Baker & Taylor Holdings, Inc., which is a non-publicly held entity. Frank A. Nicolai........... 58 Executive Vice 1974 Mr. Nicolai is one of the Company's founders and President, has served continuously as an executive officer Secretary, and since 1970. He was elected Secretary in 1987. Director In addition, he served as Treasurer of the Company from 1980 to 1999. Daniel J. Altobello........ 59 Director 1993 Mr. Altobello has been Chairman and Director of ONEX Food Services, Inc. since September 1995 and President of Caterair International Corporation since December 1989. He served as Chairman of the Board and Chief Executive Officer of Caterair International Corporation from December 1989 through September 1995. From April 1988 through December 1989, Mr. Altobello was Executive Vice President of Marriott Corporation and President of Marriott Airport Operations. He presently serves as a director of MESA Air Group, Inc., World Airways, Inc., Sodexho-Marriott Services, Inc. and First Union Realty Trust, all of which are public companies. He also currently serves as a director of CareFirst, Inc., CareFirst of Maryland, Inc., Colorado Prime Corporation, and Atlantic Aviation Holdings, and a member of the Advisory Board of Thayer Capital Partners, a merchant bank. None of these entities is publicly held.
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YEAR FIRST ELECTED NAME AGE POSITION DIRECTOR BACKGROUND ---- --- -------- -------- ---------- James J. Forese............ 64 Director 1989 Mr. Forese is currently President, Chief Executive Officer and a Director of IKON Office Solutions. From January 1997 to July 1998 he served as Executive Vice President and President, International Operations of IKON Office Solutions. From 1995 to 1996 he served as Executive Vice President, Chief Operating Officer, and Director of ALCO Standard Corporation. From 1993 to 1995 he served as General Manager of IBM Customer Financing and Chairman of IBM Credit Corporation. He served as IBM Vice President, Finance from 1990 to 1993 and IBM Vice President and Group Executive, IBM World Americas Group from 1988 to 1990. He currently serves as a director of NUI Corporation and Unisource Worldwide, both of which are publicly-held corporations. He joined ALCO/IKON in 1996. Dorothy Leonard............ 58 Director 1991 Dr. Leonard has been a Professor at the Harvard University Graduate School of Business Administration since 1993. Prior to this, she served as an Associate Professor from 1989 to 1993, and an Assistant Professor from 1983 to 1989, at the Harvard University Graduate School of Business Administration. Dr. Leonard serves as an independent industrial consultant to numerous Fortune 100 companies and to startups. She also serves on the Advisory Board to Daimler Chrysler Corporation, a public company.
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YEAR FIRST ELECTED NAME AGE POSITION DIRECTOR BACKGROUND ---- --- -------- -------- ---------- W. Walker Lewis............ 55 Director 1995 Mr. Lewis presently is Chairman of Devon Value Advisers. From January 1995 to April 1998 he was a Senior Advisor with SBC Warburg Dillon Read Inc. (previously Dillon, Read & Co., Inc.). He was Managing Director, Strategic Services, and a member of the Management Committee of Kidder, Peabody & Co., Inc. from April 1994 to December 1994. From April 1992 through December 1993, he served as President of Avon North America and as Executive Vice President of Avon Corporate. He currently serves as a director of Owens Corning, which is a publicly-held corporation, and London Fog and Mrs. Fields Original Cookies, which are non-publicly held entities. Mr. Lewis previously served as a director of AMS from February 1981 through May 1992. Frederic V. Malek.......... 63 Director 1985 Mr. Malek has been Chairman of Thayer Capital Partners, a merchant bank, since March 1993. He was Co-Chairman, CB Commercial Real Estate Group (a real estate brokerage and management firm) from April 1989 to October 1996. He was Campaign Manager for the re-election campaign of President Bush and Vice President Quayle from December 1991 to November 1992. He was Vice Chairman of Northwest Airlines from 1990 to December 1991, and was President of Northwest Airlines from 1989 to 1990. From 1988 to 1989 he was Senior Advisor to The Carlyle Group (investment bank), and from 1981 to 1988 he was President of Marriott Hotels and Resorts. Mr. Malek also serves as a director of Automatic Data Processing, Inc.; various Paine-Webber mutual funds; FPL Group; Northwest Airlines; CB Richard Ellis Services, Inc.; Global Vacation Group, Inc.; Aegis Communications Group, Inc.; SAGA Systems, Inc.; and HCR/Manor Care, Inc., all of which are publicly-held entities.
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YEAR FIRST ELECTED NAME AGE POSITION DIRECTOR BACKGROUND ---- --- -------- -------- ---------- Alan G. Spoon.............. 48 Director 1996 As of May 1, 2000, Mr. Spoon will become General Partner of Polaris Venture Partners, a venture capital firm. Mr. Spoon has been Chief Operating Officer and Director of The Washington Post Company, a public company, since 1991, and has also served as President since 1993. Mr. Spoon joined The Washington Post Company in 1982. From 1989 to 1991, he was President of Newsweek, Inc. During that time he also was responsible for Post-Newsweek television stations. From 1987 to 1989, he was The Washington Post Company's Chief Financial Officer. He presently serves as a director of Human Genome Sciences, Inc., Ticketmaster-CitySearch Online, Inc., and Danaher Corporation, each of which are public companies.
-6- 10 INFORMATION CONCERNING EXECUTIVE OFFICERS Information concerning Paul A. Brands, Chairman of the Board of Directors and Chief Executive Officer; Patrick W. Gross, Chairman of the Executive Committee of the Board of Directors; and Frank A. Nicolai, Executive Vice President and Secretary, is set forth above under the caption "Information Concerning Nominees for Director."
NAME AGE POSITION BACKGROUND ---- --- -------- ---------- Fred L. Forman................. 56 Executive Dr. Forman is currently AMS's General Manager in Vice President Europe focusing on the expansion and diversification of the Company's business there, as well as management of the Company's infrastructure. In addition, he participates in several executive steering committees with key clients and in key AMS-wide executive management activities. He joined the Company in 1971. Ronald L. Schillereff......... 55 Executive Dr. Schillereff joined the Company in February Vice President, 1999. From 1993 to 1998 he was with Electronic Chief Financial Data Systems Corporation ("EDS") serving as Officer, Managing Director of EDS Australia (1997 to 1998); and Treasurer Managing Director of A.T. Kearney for Southeast Asia, which is a wholly-owned management consulting subsidiary of EDS (1995 to 1997); and Principal and Practice Leader in Management Consulting Services, the consulting division of EDS (1993 to 1995).
-7- 11 PRINCIPAL STOCKHOLDERS As of March 20, 2000, no persons were known by the Company to beneficially own 5% or more of the outstanding shares of Common Stock. The following table sets forth, as of March 20, 2000, the number and percentage of outstanding shares of Common Stock beneficially owned by (i) each director, (ii) each executive officer, and (iii) all executive officers and directors as a group. Unless otherwise noted below, each person named in the table has sole voting and sole investment power with respect to each of the shares beneficially owned by such person.
AMOUNT OF BENEFICIAL PERCENT OF NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) OUTSTANDING SHARES(2) - ------------------------------------ ------------ --------------------- Daniel J. Altobello(3).............................................. 25,957 0.0% 6550 Rock Spring Drive Bethesda, MD 20817 Paul A. Brands (3)(4)............................................... 508,681 1.2% 4050 Legato Road Fairfax, VA 22033 James J. Forese(3).................................................. 93,708 0.2% 70 Valley Stream Parkway Malvern, PA 19355 Fred L. Forman(4)................................................... 240,560 0.6% 4050 Legato Road Fairfax, VA 22033 Patrick W. Gross(3)(4)(5)........................................... 691,972 1.7% 4050 Legato Road Fairfax, VA 22033 Dorothy Leonard(3).................................................. 14,213 0.0% Harvard University Graduate School of Business 522 Soldiers Field Road Morgan Hall T93 Boston, MA 02163 W. Walker Lewis(3).................................................. 14,403 0.0% 399 Park Avenue, 19th Floor New York, NY 10022 Frederic V. Malek(3)............................................... 24,259 0.0% 901 15th Street, N.W. Suite 350 Washington, D.C. 20004 Frank A. Nicolai(3)(4)(6)........................................... 541,154 1.3% 4050 Legato Road Fairfax, VA 22033 Ronald L. Schillereff(4)............................................ 9,333 0.0% 4050 Legato Road Fairfax, VA 22033 Alan G. Spoon(3)(7)................................................. 11,749 0.0% 1150 15th Street, N.W. Washington, D.C. 20071 All executive officers and directors................................ 2,175,989 5.2% as a group (eleven persons)
-8- 12 (1) The amount of beneficial ownership includes stock options granted to directors and executive officers which have vested and are or will become exercisable within 60 days of March 20, 2000. Accordingly, Mr. Altobello has 6,832 options vested and exercisable; Mr. Brands has 16,200 options vested and exercisable; Mr. Forese has 5,583 options vested and exercisable; Dr. Forman has 8,100 options vested and exercisable; Mr. Gross has 8,100 options vested and exercisable; Dr. Leonard has 6,833 options vested and exercisable; Mr. Lewis has 11,749 options vested and exercisable; Mr. Malek has 7,166 options vested and exercisable; Mr. Nicolai has 8,100 options vested and exercisable; Dr. Schillereff has 9,333 options vested and exercisable; and Mr. Spoon has 8,749 options vested and exercisable. All executive officers and directors as a group (eleven persons) have beneficial ownership of 96,745 options vested and exercisable within 60 days of March 20, 2000. (2) The percentages of Common Stock were calculated to include stock options vested and exercisable. The number of shares of Common Stock was calculated as of March 20, 2000. (3) Indicates a director of the Company. (4) Indicates an executive officer of the Company. (5) The amount includes 64,875 shares beneficially owned by Mr. Gross' wife. Mr. Gross disclaims beneficial ownership with respect to the shares owned by his wife, who has the sole power to vote and dispose of such shares. The amount also includes 362,310 shares jointly owned by Mr. and Mrs. Gross, who share joint power to vote and dispose of such shares. Lastly, the amount includes 55,350 shares each owned by two trusts, totaling 110,700 shares, for the benefit of Mr. Gross' son and daughter, respectively, of which Mr. and Mrs. Gross are co-trustees. Mr. and Mrs. Gross share joint power to vote and dispose of such shares. (6) The amount includes 64,124 shares beneficially owned by Ms. Nicolai with respect to which she has sole voting and dispositive power. Mr. Nicolai disclaims beneficial ownership with respect to the shares owned by Ms. Nicolai. (7) The amount includes 3,000 shares jointly owned by Mr. Spoon and his spouse, who share joint power to vote and dispose of such shares. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires that the Company's directors, executive officers, and persons who own more than 10% of a registered class of the equity securities of the Company ("reporting persons") file with the Securities and Exchange Commission (the "Commission") initial reports of ownership, and reports of changes in ownership, of shares of stock, and options to purchase such shares, of the Company. Reporting persons are required by Commission rules to furnish the Company with copies of all Section 16(a) reports they file. Based solely upon a review of Section 16(a) reports furnished to the Company for the fiscal year ended December 31, 1999 (the "1999 fiscal year"), and representations by reporting persons that no other reports were required for the 1999 fiscal year, all Section 16(a) reporting requirements were met, except as follows. During 1999, Messrs. Patrick W. Gross and James J. Forese and Ms. Nancy M. Yurek each reported the exercise of options to purchase shares of Common Stock on a Form 4 that was filed late. In addition, Mr. W. Walker Lewis reported the acquisition of shares of Common Stock for his service on the Board of Directors on a Form 4 that was filed late in 1999. -9- 13 EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table summarizes the compensation paid or accrued by the Company during the three fiscal years ended December 31, 1999, to the Company's executive officers.
ANNUAL COMPENSATION LONG-TERM COMPENSATION ------------------- ---------------------- AWARDS PAYOUTS ------ ------- SHARES UNDERLYING OPTIONS (NO. OF LTIP ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OTHER SHARES)(2) PAYOUT(3) COMPENSATION(4) - --------------------------- ---- ------ ----- ----- ------ ------------ Paul A. Brands 1999 $391,666 $335,000 0 12,000 $727,500 $8,188 Chairman of the Board 1998 342,333 437,500 0 3,000 0 8,328 of Directors, Chief Executive 1997 304,000 0 0 0 0 8,427 Officer, and Director Patrick W. Gross 1999 $330,833 $167,835 0 4,000 $347,415 $8,188 Chairman of the Executive 1998 311,167 236,250 0 1,000 0 8,328 Committee of the Board of 1997 292,000 0 0 0 0 8,427 Directors, and Director Frank A. Nicolai 1999 $306,666 $155,775 0 4,000 $324,225 $8,188 Executive Vice President, 1998 286,333 217,500 0 1,000 0 8,328 Secretary, and Director 1997 268,000 0 0 0 0 8,427 Fred L. Forman 1999 $330,833 $125,250 $266,376(5) 4,000 $375,750 $8,188 Executive Vice President 1998 313,500 236,250 174,158(6) 1,000 0 8,328 1997 303,667 229,500 9,959(7) 0 0 8,427 Ronald L. Schillereff 1999 $275,000 $150,000 0 35,000(8) 0 0 Executive Vice President, Chief Financial Officer, and Treasurer
(1) All amounts were awarded based on the achievement of annual performance goals under single or multi-year incentive compensation plans. (2) Except as otherwise indicated, each of these awards of shares of Common Stock is associated with performance under individual incentive compensation plans and was made by the appropriate Board committee pursuant to a shareholder-approved stock option plan. (3) All amounts represent the final cash payment for successful completion of multi-year performance indicators of individual incentive compensation plans. (4) These amounts represent the Company's contribution to special individual retirement accounts pursuant to the AMS Simplified Employee Pension/IRA Plan (the "IRA Plan"). (5) This amount consists of $142,315 in foreign assignment related income and $124,061 in foreign taxes paid by the Company in connection with compensation paid to Dr. Forman for services performed for the Company abroad. (6) This amount consists of $104,186 in foreign assignment related income and $69,972 in foreign taxes paid by the Company in connection with compensation paid to Dr. Forman for services performed for the Company abroad. (7) This amount represents foreign taxes paid by the Company in connection with compensation paid to Dr. Forman for services performed for the Company abroad. (8) Dr. Schillereff received these options upon joining the Company in February 1999. -10- 14 OPTION GRANTS IN FISCAL 1999 Shown below is information concerning stock option grants to the Company's executive officers who were granted options on Common Stock during the Company's 1999 fiscal year.
INDIVIDUAL GRANTS --------------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF STOCK SHARES OPTIONS PRICE APPRECIATION FOR OPTION UNDERLYING GRANTED TO EXERCISE OR TERM COMPOUNDED ANNUALLY OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ------------------------------ NAME GRANTED(1) FISCAL 1999 ($/SHARE)(2) DATE 5% 10% ---- ------- ----------- ---------- ---- -- --- Paul A. Brands............ 12,000 1.1% $33.38 02/29/04 $110,719 $244,678 Patrick W. Gross.......... 4,000 0.4% $33.38 02/29/04 $36,906 $81,559 Frank A. Nicolai.......... 4,000 0.4% $33.38 02/29/04 $36,906 $81,559 Fred L. Forman............ 4,000 0.4% $33.38 02/29/04 $36,906 $81,559 Ronald L. Schillereff..... 35,000(3) 3.3% $35.88 02/01/04 $346,906 $766,572
(1) Except as otherwise indicated, each option grant is associated with a performance-based individual incentive compensation plan for 1998-1999 and was made by the appropriate Board committee pursuant to 1996 Amended Stock Option Plan F, as amended ("Plan F"), a shareholder-approved stock option plan. The options will become exercisable one month prior to the indicated expiration date. In accordance with each incentive compensation plan, the exercise date of an option award may be accelerated to June 30 or August 31 of the year following the end of the performance period covered by the plan if the Compensation Committee determines that the executive successfully completed the plan. (2) Each option grant was awarded with an exercise price equal to the market value of the Common Stock on the date of the grant. (3) These options were granted to Dr. Schillereff when he joined AMS in February 1999. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES Shown below is information with respect to exercises by the Company's executive officers during the Company's 1999 fiscal year of options to purchase shares of Common Stock pursuant to Plan F, and earlier stock option plans. Also shown is information with respect to certain unexercised options to purchase shares of Common Stock held by the Company's executive officers as of the end of the Company's 1999 fiscal year.
NUMBER OF NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT ACQUIRED END OF FISCAL YEAR END OF FISCAL 1999(2) ON VALUE ------------------ --------------------- NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- -------- ----------- ----------- ------------- ----------- ------------- Paul A. Brands........................ 0 0 24,300 16,500 $263,250 $16,312 Patrick W. Gross...................... 0 0 12,150 5,750 $131,625 $6,656 Frank A. Nicolai...................... 1,350 $30,633 12,150 5,750 $131,625 $6,656 Fred L. Forman........................ 0 0 12,150 5,750 $131,625 $6,656 Ronald L. Schillereff................. 0 0 7,000 28,000 0 0
(1) Based on the market value of the Common Stock on the date of exercise (as measured by the closing bid price of the National Market of The Nasdaq Stock Market), minus the option's exercise price. (2) Based on the market value of the Common Stock on the last trading day of 1999 (as measured by the closing bid price of $31.35 of the National Market of The Nasdaq Stock Market), minus the option's exercise price. LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR No long-term incentive plan awards were made to the Company's executive officers during the Company's 1999 fiscal year. -11- 15 Notwithstanding anything to the contrary set forth in any of the Company's previous filings under the Securities Act of 1933, as amended, or the Exchange Act that might incorporate future filings, including this Proxy Statement, in whole or in part, the following report and Performance Graph shall not be incorporated by reference into any such filings. COMPENSATION COMMITTEE REPORT OF EXECUTIVE COMPENSATION COMPOSITION AND RESPONSIBILITIES OF COMPENSATION COMMITTEE The Compensation Committee of the Board of Directors is responsible for developing and making recommendations to the Board of Directors with respect to the Company's compensation policies generally. It is composed entirely of outside directors who have never served as officers of the Company or its affiliates (the "Outside Directors"). The Compensation Committee approves the compensation plans for the Company's executive officers, including the Chief Executive Officer (the "CEO"), and on an annual basis determines the compensation to be paid to the executive officers. The Compensation Committee is responsible for the granting and administration of stock options and incentive compensation granted to the executive officers. The Compensation Committee has furnished the following report for fiscal 1999: COMPENSATION OBJECTIVES AND PHILOSOPHY The objectives of the Company's executive compensation program are to provide a level of compensation that will attract and retain executives capable of achieving long-term success for the Company's shareholders and to structure their compensation packages such that a significant portion generally is tied to the achievement of multi-year targets for pre-tax income. EXECUTIVE OFFICER COMPENSATION GENERAL. The Company's executive compensation program consists of three main components: (i) annual base salary, (ii) potential for an annual cash bonus and awards of stock options based on Company pre-tax income, the profit contribution of a particular business unit, individual performance, or some combination of these factors, and (iii) the opportunity to earn long-term cash and stock-based incentives which are intended to encourage the achievement of superior results over time and to align executive officer and shareholder interests. In addition to research and recommendations furnished by the Company's senior management, the Compensation Committee has relied, inter alia, on information furnished through executive compensation surveys by a recognized compensation consulting firm, and information known to various members of the Board of Directors. The Compensation Committee compares salaries and other elements of executive compensation with the compensation paid to executives in technology and consulting firms which are actual competitors of the Company. Few of these companies are in the Hambrecht & Quist Technology Stock Index, the peer index chosen by the Company for comparison in the "Shareholder Return Performance Graph" below, because their shares are not publicly traded. They include, for example, the consulting divisions of certain Big 5 accounting firms, other prominent consulting firms which are wholly-owned subsidiaries of publicly-traded companies, and other software firms that are privately held. The executive officers, including the CEO, are eligible for the same benefits, including group health and life insurance and participation in the IRA Plan, as are available generally to the Company's professional staff, except that the executive officers do not participate in the Company's Profit-Sharing Plan (the "Profit-Sharing Plan"), a stock award plan, or the Company's Employee Stock Purchase Plan. The Company does not provide material perquisites to any of its executive officers. ANNUAL BASE SALARY. The Compensation Committee determines the annual base salary of each of the Company's executive officers, including the CEO. Changes in base salary are generally made effective on March 1. The same principles are applied in setting the salaries of all executive officers to ensure that salaries are competitively established. Salaries are determined by considering the executive officer's potential duties and responsibilities within the Company and his business unit, and the executive officer's potential impact on the operations and profitability of the Company. Unlike with respect to the Company's incentive compensation -12- 16 arrangements, the Compensation Committee does not consider achievement of specific corporate performance factors in establishing base salaries for its executive officers. In general, it is the policy of the Company to set base salaries lower than would be typical for comparable positions in similar firms, and to include more compensation in incentive plans, particularly incentive compensation plans tied to multi-year performance periods. INCENTIVE COMPENSATION PLANS. Each executive officer of the Company generally participates in incentive compensation plans of one to three years in duration. These plans are similar to multi-year incentive plans in which other members of the Company's professional staff participate. Under such plans, the executive officer is eligible for annual cash incentive awards, and cash awards which may be made at the end of each plan if the Compensation Committee determines that the executive officer has met the specified goals of the executive's programs. Some plans also contemplate awards of stock options under the Company's shareholder-approved stock option plans. Generally, each executive officer has a plan which details the executive officer's goals, which are comprised of financial performance, including targets for the Company's pre-tax income. Each executive officer also generally has an incentive compensation plan with targets based on the achievement of various individual goals. The annual cash awards under the incentive compensation plans and the cash portion of the award for completion of an incentive compensation plan generally are based on multiples of a percentage of the executive officer's salary for the relevant fiscal period. The number of stock options which may be awarded is determined at the time the performance goals are established. Such number of stock options is not determined by reference to any specific criteria other than the Company's historical practice of awarding stock options in connection with incentive compensation plans for certain executive officers. The exercise price of all options granted in connection with the incentive compensation plans for the executive officers is the fair market value of the shares on the date of grant of the option. Achievement of the specified financial or individual goals for plan years earlier than the final plan year in a multi-year plan entitles the executive to specified interim cash payments and stock option grants, all of which are considered advances against the multi-year incentive compensation amounts. Such interim cash payments are significantly less than a ratable percentage of the projected incentive compensation payable on successful completion of a multi-year plan. For example, successful completion of the first year of a two-year plan typically would entitle the executive to payment of 25% of target cash incentive compensation. Stock options in connection with multi-year plans also are granted according to a schedule specified in the plan, typically including a small percentage of options granted at the time the plans are approved by the Compensation Committee. Fiscal 1999 was the second year of two-year compensation plans for Paul A. Brands, Patrick W. Gross, Frank A. Nicolai, and Fred L. Forman. All of these plans included the same pre-tax income target as a financial goal and included individual goals based on the areas of responsibility of each such executive officer. All plans required that a minimum percentage of the stated goal must be achieved before any portion of the related incentive compensation share was payable. The plans also took into account projected pre-tax income for the year following the performance year just ended in determining whether awards are payable and the amounts of such awards. Each plan also included higher award multiples for performance which exceeded the targets by a stated percentage. Ronald L. Schillereff completed a one-year incentive compensation plan with non-financial goals in 1999. His individual goals were based on his area of responsibility and included the establishment of certain management and control processes. In February 2000, the Compensation Committee determined that Messrs. Brands, Gross, and Nicolai had substantially met their financial and non-financial goals relative to fiscal year 1999 and that Dr. Schillereff had substantially met his non-financial goals for such year, and determined that each had earned his respective target payments. In addition, the Compensation Committee determined that Dr. Forman had substantially met his financial goals and had met certain of his non-financial goals for fiscal year 1999 and determined that he had earned the related target payments. The foregoing amounts are shown above in the Summary Compensation Table under "Annual Compensation -- Bonus" and/or "Long-Term Compensation -- Payouts -- LTIP Payout." The Compensation Committee in February 2000 also approved the stock option awards to Messrs. Brands, Gross, Nicolai, and Forman contemplated by their approved incentive compensation plans and based on achievement of the specified goals for fiscal 1999. -13- 17 POLICY ON DEDUCTIBILITY OF COMPENSATION Under Section 162(m) ("Section 162(m)") of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), the allowable deduction for compensation paid or accrued with respect to persons who as of the end of the year are employed as the chief executive officer and each of the four most highly compensated executive officers of a publicly-held corporation is limited to no more than $1 million per year for fiscal years beginning on or after January 1, 1994. This limitation does not apply to compensation payable to the Company's current executive officers consisting of stock options issuable under Plan F or earlier stock option plans, nor to compensation payable under certain performance-based compensation plans approved by shareholders. The Compensation Committee has taken certain actions to minimize the adverse effects of Section 162(m) on the after-tax income of the Company. In particular, as recommended by the Compensation Committee, the 1996 Incentive Compensation Plan for Executive Officers (the "IC Plan") was presented to and approved by the shareholders at the 1996 annual meeting of shareholders of the Company. Grants to executive officers of incentive compensation based on pre-tax income are generally expected to be covered by the IC Plan when such coverage is consistent with the Compensation Committee's goals. The IC Plan significantly limits the Compensation Committee's discretion regarding the structure and amount of incentive compensation paid to an employee covered by such Plan. Accordingly, not all incentive compensation payable to executive officers is paid pursuant to the IC Plan. The Compensation Committee projects that it is unlikely that deductions will be lost as a result of this practice. The Compensation Committee will continue to monitor whether compensation that is limited by Section 162(m) is likely to exceed the deduction limitations under Section 162(m), and the Compensation Committee is expected to take appropriate actions to reduce the likelihood of a loss of deductions. CHIEF EXECUTIVE OFFICER COMPENSATION The Chief Executive Officer's annual base salary is established by the Compensation Committee using the same criteria as discussed above for the executive officers. Paul A. Brands, who has served as Chief Executive Officer of the Company since September 1993, received an annual base salary of $400,000 for 1999, which represented an increase of approximately 14% over his base salary for 1998. The increase was not based on any specific corporate performance factors. Mr. Brands' incentive compensation payments are determined by the Compensation Committee based on targets for the Company's pre-tax income, collection of accounts receivable, and certain other financial and non-financial goals. Mr. Brands met the financial targets for fiscal years 1998 and 1999, as determined by the Compensation Committee in February 2000, entitling him to payment of $727,500 in bonus for successful completion of his multi-year plan. Based on Mr. Brands' successful completion of his 1998-1999 multi-year plan, the Compensation Committee also determined to grant Mr. Brands 7,500 stock options in February 2000, as contemplated by the incentive compensation program. At its February 2000 meeting, the Compensation Committee also decided to increase Mr. Brands' base salary to $425,000 as of March 1, 2000. Daniel J. Altobello (Chairman) James J. Forese Dorothy Leonard W. Walker Lewis Frederic V. Malek Alan G. Spoon -14- 18 SHAREHOLDER RETURN PERFORMANCE GRAPH The following graph and table provide a comparison of the cumulative total return on the Common Stock of the Company for the five-year period beginning December 31, 1994, with returns on the Standard & Poor's 500 Composite Index and the Computer Software Sector Index of the Hambrecht & Quist Technology Stock Index. The graph and table assume that the value of the investment in the Common Stock of the Company and each of the aforementioned indices on December 31, 1994, was $100 and that all cash dividends were reinvested, although the Company has never paid cash dividends on the Common Stock. The historical stock price performance of the Common Stock of the Company shown below is not necessarily indicative of future stock price performance. [BAR GRAPH]
========================================================================================================================== 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 ========================================================================================================================== AMSY Common Stock $100 $156 $191 $152 $312 $244 ========================================================================================================================== S&P 500 Composite Index $100 $138 $169 $226 $290 $351 ========================================================================================================================== Hambrecht & Quist Technology/Software $100 $143 $174 $211 $275 $626 ==========================================================================================================================
-15- 19 COMMITTEES AND COMPENSATION OF THE BOARD OF DIRECTORS COMMITTEES AND MEETINGS The Company has a standing Executive Committee, Stock Option/Award Committee, Compensation Committee, and Audit Committee. The Company does not have a standing Nominating Committee. The Executive Committee is presently composed of three directors, all of whom are executive officers of the Company: Patrick W. Gross (Committee Chairman), Paul A. Brands, and Frank A. Nicolai. The Executive Committee generally has the power to authorize all corporate actions that the Board of Directors has the power to authorize, except as may be limited by law. The Executive Committee met once during 1999. The Stock Option/Award Committee is presently composed of three directors, all of whom are executive officers of the Company: Paul A. Brands (Committee Chairman), Patrick W. Gross, and Frank A. Nicolai. The Stock Option/Award Committee administers the Company's employee stock option plans, except as noted below. These directors are eligible to receive options under the plans, but options, if any, awarded to them are granted and administered by the Compensation Committee. The Stock Option/Award Committee also administers the Profit-Sharing Plan. Directors and executive officers are not eligible to participate in the Profit-Sharing Plan. The Stock Option/Award Committee meets as required and met twice during 1999. The Compensation Committee is presently composed of the six Outside Directors: Daniel J. Altobello (Committee Chairman), James J. Forese, Dorothy Leonard, W. Walker Lewis, Frederic V. Malek, and Alan G. Spoon. The Compensation Committee is responsible for developing and making recommendations to the Board of Directors with respect to the Company's compensation policies generally. The Compensation Committee approves the compensation plans for the Company's executive officers, including the Chief Executive Officer, and on an annual basis determines the compensation to be paid to the executive officers. The Compensation Committee alone is responsible for the granting and administration of stock options granted to the executive officers and to the Controller. In 1999, the Compensation Committee met three times. The Audit Committee is presently composed of four Outside Directors: James J. Forese (Committee Chairman), Daniel J. Altobello, Dorothy Leonard, and Alan G. Spoon. This Committee has the responsibility for making recommendations to the Board of Directors as to the independent accountants of the Company; for reviewing with the independent accountants, upon completion of their audit, the scope of their examination, any recommendations they may have for improving internal accounting controls, management systems, or choice of accounting principles, and other matters; and for reviewing generally the accounting control procedures of the Company. In 1999, the Audit Committee met three times. The Board of Directors met five times during 1999. All members attended all of the meetings of the Board and Committees of the Board on which they serve. COMPENSATION Directors who also serve as executive officers of the Company are not separately compensated for attending Board meetings. Outside Directors were entitled to receive a meeting fee of $5,000, plus travel expenses, for the first Board meeting attended during 1999. Thereafter, the fee was increased to $6,000 per Board meeting attended, and the fee is currently at this level. Such fees and expenses were, in fact, paid for all meetings attended during fiscal 1999. In addition, Outside Directors were paid an annual retainer of $6,000 during fiscal 1999. Under the Company's Outside Directors Stock-for-Fees Plan (the "Stock-for-Fees Plan"), which was approved by shareholders in May 1995, Outside Directors can elect to have the annual meeting fees and retainer, which would otherwise be paid to the Outside Directors in cash, paid in the form of Common Stock. Alternatively, Outside Directors can elect to defer receipt of the annual meeting fees and retainer pursuant to the Company's Outside Director Deferred Compensation Plan (the "Deferred Compensation Plan"). Under the terms of the Deferred Compensation Plan, Outside Directors making such an election would be credited with earnings on amounts deferred at an interest rate based on a corporate bond index and such interest rate would be increased by 300 basis points if the Company achieved certain annual performance goals. W. Walker Lewis elected to have his meeting -16- 20 fees for the five Board meetings he attended during 1999 paid in the form of Common Stock pursuant to the Stock-for-Fees Plan. Prior to the amendment of Plan F by the Board of Directors and the shareholders in May 1999, Outside Directors received automatic grants of stock options. Plan F, as amended, eliminated the automatic, non-discretionary stock option awards to Outside Directors and permits the Compensation Committee to grant stock options to Outside Directors on a discretionary basis. On July 23, 1999, each Outside Director was granted 5,000 options to purchase shares of Common Stock. All of such options vested immediately upon their grant to the Outside Directors. The following is a summary of the stock options that were granted to Outside Directors pursuant to the Company's stock option plans prior to the May 1999 amendment of Plan F. The number of shares subject to grant, and subject to outstanding options, are adjusted when stock splits occur. All options granted to Outside Directors vest at the rate of 1/60th a month for each month the Outside Director continues to serve as a director. Pursuant to a prior stock option plan, each Outside Director in May 1988 was granted 5,000 options to purchase shares of Common Stock. James J. Forese, who became a director in November 1989, was granted 5,000 options on November 10, 1989. Dorothy Leonard, who became a director in September 1991, was granted 5,000 options on September 27, 1991. Under 1992 Amended and Restated Stock Option Plan E, as amended ("Plan E"), each new Outside Director was automatically granted 5,000 options (such number subject to adjustments for splits) upon first becoming a director, and each Outside Director was automatically granted an additional 5,000 options (such number subject to adjustments for splits), vesting over five years, when any options previously granted have fully vested. Pursuant to Plan E, Daniel J. Altobello was granted 7,500 options on July 27, 1993 when he first became a director, and Frederic V. Malek was granted 5,000 options in April 1993 because his options granted in 1988 had fully vested. The grant to Mr. Malek was made subject to shareholder approval, which was obtained in May 1993. In addition, under Plan E, Mr. Forese was granted 7,500 options (after giving effect to the October 1994 stock split) in November 1994 because his options granted in 1988 had fully vested, and W. Walker Lewis was granted 5,000 options on December 1, 1995 when he became a director. Dr. Leonard was granted 5,000 options under Plan E in August 1996 because her options granted in 1991 had fully vested, and Alan G. Spoon was granted 5,000 options under Plan E in September 1996 when he became a director. Plan F, as in effect prior to its amendment in 1999, provided for the automatic grant of the same amount of options to Outside Directors as provided for under Plan E. Consequently, Mr. Malek was granted 5,000 options under Plan F in April 1998 because his options granted in 1993 had fully vested. In addition, Mr. Altobello was granted 5,000 options under Plan F in August 1998 because his options granted in 1993 had fully vested. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Daniel J. Altobello, James J. Forese, Dorothy Leonard, W. Walker Lewis, Frederic V. Malek, and Alan G. Spoon served as members of the Compensation Committee during fiscal 1999 and continue to serve as members. Mr. Altobello is Chairman of the Compensation Committee. During 1999, there were no Compensation Committee interlocks, and there was no insider participation in the executive compensation decisions of the Company. -17- 21 INDEPENDENT PUBLIC ACCOUNTANTS On July 31, 1998, at the Company's regularly scheduled meetings of the Board of Directors and the Audit Committee, the Company accepted the resignation of PricewaterhouseCoopers LLP because of conflicts of interest resulting from the July 1, 1998 merger of Price Waterhouse LLP and Coopers & Lybrand LLP. The Company and Coopers & Lybrand LLP have long-standing business relationships which both parties wish to continue. In view of the independence requirements of the Commission regarding the independence of certifying public accountants, the Company and PricewaterhouseCoopers LLP mutually determined that it would be inappropriate for PricewaterhouseCoopers LLP to continue as the Company's accountants. Price Waterhouse LLP was the Company's independent certifying accountants for 28 years. As a result of these circumstances, the Audit Committee and the Board of Directors thereupon appointed Deloitte & Touche LLP as the Company's independent certifying accountants for the fiscal years ending December 31, 1998 and December 31, 1999. During the two fiscal years ended December 31, 1997 and December 31, 1996, the reports of PricewaterhouseCoopers LLP on the annual financial statements have neither contained any adverse opinions or disclaimers of opinions, nor have they been qualified or modified. During such two-year period, and through July 31, 1998, there were no disagreements with PricewaterhouseCoopers LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of PricewaterhouseCoopers LLP, would have caused PricewaterhouseCoopers LLP to make reference to the subject matter of the disagreement in connection with its reports on the financial statements for such years. A representative from Deloitte & Touche LLP is expected to be present at the Annual Meeting, will have an opportunity to make a statement should the representative desire to do so, and is expected to be available to respond to appropriate questions during such Meeting. The Board of Directors has not yet appointed an accounting firm to audit the accounts of the Company for the fiscal year ending December 31, 2000. The Board of Directors, upon the recommendation of the Audit Committee, expects to make such appointment at its regularly scheduled meeting in September 2000. OTHER MATTERS The Board of Directors does not know of any matters to be presented at the Annual Meeting other than the election of directors. If any other business should come before the Annual Meeting, including a vote to adjourn or postpone such Meeting, the persons named in the enclosed Proxy will vote thereon at the Meeting, or any adjournment or postponement thereof, as they determine to be in the best interests of the Company. PROPOSALS FOR 2001 ANNUAL MEETING OF SHAREHOLDERS Under the rules of the Commission, the date by which proposals of shareholders of the Company intended to be presented at the 2001 annual meeting of shareholders must be received by the Company for inclusion in the proxy statement and form of proxy to be distributed by the Board of Directors is December 14, 2000. Shareholder proposals should be submitted to Frank A. Nicolai, Secretary, American Management Systems, Incorporated, 4050 Legato Road, Fairfax, Virginia 22033. Under the Company's By-laws (the "By-laws"), a stockholder must follow certain procedures to nominate persons for election as directors or to propose other business to be considered at an annual meeting of shareholders. These procedures provide that shareholders desiring to make nominations for directors and/or to bring a proper subject before a meeting must do so by notice timely received by the Secretary of the Company. The Secretary of the Company generally must receive notice of any such proposal not less than sixty days and no more than ninety days prior to the anniversary of the preceding year's annual meeting of shareholders. In the case of proposals for the 2001 annual meeting of shareholders, the Secretary of the Company generally must receive notice of any such proposal no earlier than February 11, 2001, and no later than March 13, 2001 (other than proposals intended to be included in the proxy statement and form of proxy, which, as noted above, must be received by December 14, 2000). Generally, such shareholder notice must set forth (a) as to each nominee for director, all information -18- 22 relating to such nominee that is required to be disclosed in solicitations or proxies for election of directors under the proxy rules of the Commission; (b) as to any other business, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder; and (c) as to the shareholder, (i) the name and address of such shareholder, (ii) the number of shares of Common Stock which are owned beneficially and of record by such shareholder, (iii) a representation that the shareholder is a holder of record of Common Stock entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such nomination or other business, and (iv) a representation as to whether the shareholder intends, or is part of a group which intends, to solicit proxies from other shareholders in support of such nomination or other business. The chairman of the annual meeting shall have the power to declare that any proposal not meeting these and any other applicable requirements imposed by the By-laws shall be disregarded. A copy of the By-laws may be obtained without charge on written request to Frank A. Nicolai, Secretary, American Management Systems, Incorporated, 4050 Legato Road, Fairfax, Virginia 22033. In addition, the form of proxy solicited by the Board of Directors in connection with the 2001 annual meeting of shareholders will confer discretionary authority to the named proxies to vote on any proposal, unless with respect to a particular proposal the Secretary of the Company receives notice of such matter no earlier than February 11, 2001, and no later than March 13, 2001, and such notice complies with the other requirements described in the preceding paragraph. ANNUAL REPORT A copy of the 1999 Annual Report of the Company (which includes condensed financial data and a letter to shareholders) accompanies this Proxy Statement. Appendix 1 to this Proxy Statement, titled "1999 Financial Report," contains all of the financial information (including the Company's audited financial statements), and certain general information, published in the Company's 1999 Annual Report. Appendix 1 is incorporated herein by reference. A copy of the Company's 1999 Annual Report on Form 10-K may be obtained without charge by writing to Frank A. Nicolai, Secretary, American Management Systems, Incorporated, 4050 Legato Road, Fairfax, Virginia 22033. BY ORDER OF THE BOARD OF DIRECTORS, Frank A. Nicolai Secretary April 12, 2000 Fairfax, Virginia SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING ARE REMINDED TO DATE, SIGN, AND RETURN THE ENCLOSED PROXY IN THE POSTAGE-PAID ENVELOPE PROVIDED OR CAST YOUR VOTES BY TELEPHONE AT 1-800-840-1208. INSTRUCTIONS REGARDING TELEPHONE VOTING ARE INCLUDED ON THE PROXY. -19- 23 APPENDIX 1 AMERICAN MANAGEMENT SYSTEMS, INCORPORATED 1999 FINANCIAL REPORT CONTENTS - -------------------------------------------------------------------------------- Business of AMS 1 Financial Statements and Notes 4 Reports of Independent Accountants 25 Management's Discussion and Analysis of Financial Condition and Results of Operations 27 Assumptions Underlying Certain Forward-Looking Statements and Factors That May Affect Future Results 34 Five-Year Financial Summary 36 Five-Year Revenues by Target Market 37 Selected Quarterly Financial Data 38 Other Information 39 24 BUSINESS OF AMS OVERVIEW The business of American Management Systems, Incorporated and its wholly-owned subsidiaries ("AMS" or the "Company") is to partner with clients to achieve breakthrough performance through the intelligent use of information technology. AMS is the premier provider of Next Generation Enterprise business and technology solutions that dramatically improve business performance and create value for our clients. AMS provides a full range of consulting services from strategic business analysis to the full implementation of solutions that produce genuine results, on time and within budget. AMS's suite of eBusiness strategy, management and technology services makes business reinvention possible in Internet time for large organizations. AMS measures success based on the results and business benefits achieved by its clients. AMS is a trusted business partner for many of the largest and most respected organizations in the markets in which it specializes. AMS is a company that transforms organizations into Next Generation Enterprises. A key element of this is establishing an extensive network of strategic alliances, partnerships and joint ventures to provide "best of breed" solutions and to extend AMS's market reach in all of the Company's target markets. Further, the Company is establishing organizations with different business models to leverage the Company's assets in new ways and create additional market value. Each year, approximately 85-90% of the Company's business comes from clients it worked with in previous years. The Company, which operates as one segment, focuses on clients in specific sectors which are referred to as target markets. The Company is targeting high value sectors within these target markets and striving to be the market leader in providing Next Generation Enterprise solutions. Organizations in AMS's target markets -- telecommunications firms; financial services institutions; state and local governments and education organizations; federal government agencies; and other corporate clients -- have a crucial need to exploit the potential benefits of information and systems integration technology. The Company helps clients fulfill this need by continuing to build a professional staff which is composed of experts in the necessary technical and functional disciplines; managers who can lead large, complex systems integration projects; and business and computer analysts who can devise creative solutions to complex problems. The Company is focused on accelerating international growth, and the Company is investing in establishing a strong AMS brand and identity to support the growth. Another significant component of AMS's business is the development of proprietary software products, either with its own funds or on a jointly funded basis with other organizations. These products are principally licensed as elements of custom tailored systems, and, to a lesser extent, as stand-alone applications. The Company expended $102.3 million in 1999, $77.4 million in 1998, and $50.6 million in 1997 for development associated with proprietary software. The Company expensed in the accompanying consolidated financial statements $47.1 million in 1999, $35.4 million in 1998, and $30.7 million in 1997 for research and development associated with proprietary software, including amortization. In 1999, the Company reduced the unamortized costs by $21.8 million representing collections from funding partners, compared to $14.8 million in 1998. As a percentage of revenues, license and maintenance fee revenues were less than 10% during each of the last three years. As part of its growth strategy the Company has formed a cross-target market practice that will focus on delivering high-value, customer-facing Web solutions - including eBill, eCare and eMarketing - tailored to clients in the financial services, telecommunications, government and utilities sectors. These solutions will help firms achieve greater cost savings, deliver improved customer service and leverage cross-sell and up-sell opportunities in their markets. The new "eCustomer" practice builds upon the Company's existing, significant eCommerce client base. In 1999, the Company expanded its direct eBusiness revenue to approximately $117 million and its eBusiness related revenue to more than $500 1 25 million, both increases of more than 150%. Given the rapidly evolving digital economy and the critical role of eBusiness, AMS has begun to implement a strategy that clearly positions the Company for success in this fast changing environment. The vision driving the strategy is to be the premier provider of Next Generation Enterprise business and technology solutions that dramatically improve business performance. AMS will provide leading edge eBusiness services and solutions to transform both private and public organizations into Next General Enterprises - organizations fully utilizing emerging technologies to succeed in the digital economy. In order to serve clients outside of the United States, AMS has expanded internationally by establishing subsidiaries or foreign branches. Exhibit 21 of this Form 10-K provides a complete listing of all twenty-one active AMS subsidiaries (and branches), showing name, year organized or acquired, and place of incorporation. Revenues attributable to AMS's non-US clients were approximately $226.7 million in 1999, $208.4 million in 1998, and $248.6 million in 1997. Additional information on revenues and assets attributable to AMS's geographic areas of operation is provided in Note 12 of the consolidated financial statements appearing in Exhibit 13 of this Form 10-K. Founded in 1970, AMS services clients worldwide. AMS's approximately 9,000 employees serve clients from corporate headquarters in Fairfax, Virginia and from 59 offices worldwide. TELECOMMUNICATIONS FIRMS AMS markets systems consulting and integration services for order processing, customer care, billing, accounts receivable, and collections, both for local exchange and interexchange carriers and for cellular/wireless telephone companies. Much of the Company's work involves developing and implementing customized capabilities using AMS's application software products as a foundation. FINANCIAL SERVICES INSTITUTIONS AMS provides information technology consulting and systems integration services to money center banks, major regional banks, insurance companies, and other large financial services firms. The Company specializes in corporate and international banking, consumer credit management, customer value and global risk management, bank management information systems, and retirement plan systems. STATE AND LOCAL GOVERNMENTS AND EDUCATION AMS markets systems consulting and integration services, and application software products, to state, county, and municipal governments for financial management, tax and revenue management, human resources, social services, public safety and transportation functions, and environmental systems. The Company also markets services and application software products to universities and colleges. FEDERAL GOVERNMENT AGENCIES The Company's clients include civilian and defense agencies and aerospace companies. Assignments require knowledge of agency programs and management practices as well as expertise in computer systems integration. Services provided by AMS include information technology, consulting, operations and maintenance support, large scale systems integration and certain Year 2000 remediation. AMS's work for defense agencies often involves specialized expertise in engineering and logistics. 2 26 OTHER CORPORATE CLIENTS The Company also solves information systems problems for the largest firms in other industries, including health care organizations and firms in the gas and electric utilities industry. AMS has systems integration and operations projects with several large organizations and intends to pursue more. AMS provides technical training and technical consulting services in software technology for large-scale business systems. 3 27 FINANCIAL STATEMENTS AND NOTES American Management Systems, Incorporated CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31 (In millions except per share data) 1999 1998 1997 - ----------------------------------------------------------------------------------------------- REVENUES $1,240.3 $1,057.8 $872.3 EXPENSES Client Project Expenses 653.8 576.2 485.0 Other Operating Expenses 380.0 305.7 271.6 Corporate Expenses 88.6 79.0 61.4 Provision for Specific Contract 20.0 7.0 -- -------- -------- ------ 1,142.4 967.9 818.0 INCOME FROM OPERATIONS 97.9 89.9 54.3 OTHER (INCOME) EXPENSE Interest (Income) Expense -- 0.8 4.4 Other (Income) Expense (2.8) 1.1 (1.5) Loss on Equity Investments in Other Companies 4.3 0.7 -- -------- -------- ------ 1.5 2.6 2.9 INCOME BEFORE INCOME TAXES 96.4 87.3 51.4 INCOME TAXES 39.5 35.5 20.2 -------- -------- ------ NET INCOME $ 56.9 $ 51.8 $ 31.2 ======== ======== ====== WEIGHTED AVERAGE SHARES 41.9 42.1 41.4 ======== ======== ====== BASIC NET INCOME PER SHARE $ 1.36 $ 1.23 $ 0.75 ======== ======== ====== WEIGHTED AVERAGE SHARES AND EQUIVALENTS 42.6 42.9 42.3 ======== ======== ====== DILUTED NET INCOME PER SHARE $ 1.34 $ 1.21 $ 0.74 ======== ======== ======
- ---------------- See Accompanying Notes to Consolidated Financial Statements. 4 28 American Management Systems, Incorporated CONSOLIDATED BALANCE SHEETS
December 31 (In millions except per share data) 1999 1998 - ----------------------------------------------------------------------------------------------- ASSETS - ----------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and Cash Equivalents $ 111.3 $ 119.3 Accounts and Notes Receivable 294.7 260.3 Prepaid Expenses and Other Current Assets 22.8 8.8 -------- -------- 428.8 388.4 FIXED ASSETS Equipment 50.5 59.7 Furniture and Fixtures 25.5 23.6 Leasehold Improvements 19.1 17.3 -------- -------- 95.1 100.6 Accumulated Depreciation and Amortization (63.9) (63.0) -------- -------- 31.2 37.6 OTHER ASSETS Purchased and Developed Computer Software (Net of Accumulated Amortization of $74,500,000 and $72,000,000) 114.7 83.6 Intangibles (Net of Accumulated Amortization of $5,500,000 and $4,700,000) 6.2 4.3 Other Assets (Net of Accumulated Amortization of $940,000 and $920,000) 31.6 23.7 -------- -------- 152.5 111.6 -------- -------- TOTAL ASSETS $ 612.5 $ 537.6 ======== ========
- ---------------- See Accompanying Notes to Consolidated Financial Statements. 5 29 American Management Systems, Incorporated CONSOLIDATED BALANCE SHEETS
December 31 (In millions except per share data) 1999 1998 - ------------------------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------ CURRENT LIABILITIES Notes Payable and Capitalized Lease Obligations $ 6.1 $ 5.3 Accounts Payable 24.6 21.3 Accrued Incentive Compensation 51.7 55.8 Other Accrued Compensation and Related Items 40.7 39.8 Deferred Revenues 57.4 37.7 Other Accrued Liabilities 12.8 4.8 Accrued Contract Losses 27.0 7.3 Income Taxes Payable 7.0 9.1 -------- -------- 227.3 181.1 Deferred Income Taxes 2.8 4.9 -------- -------- 230.1 186.0 NONCURRENT LIABILITIES Notes Payable and Capitalized Lease Obligations 16.5 22.7 Other Accrued Liabilities 27.5 15.9 Deferred Income Taxes 28.9 21.1 -------- -------- 72.9 59.7 -------- -------- TOTAL LIABILITIES 303.0 245.7 STOCKHOLDERS' EQUITY Preferred Stock ($0.10 Par Value; 4,000,000 Shares Authorized, None Issued or Outstanding) Common Stock ($0.01 Par Value; 200,000,000 Shares Authorized, 51,057,214 and 51,057,214 Issued and 41,018,387 and 42,026,510 Outstanding) 0.5 0.5 Capital in Excess of Par Value 89.5 96.7 Retained Earnings 297.2 240.3 Currency Translation Adjustment (12.2) (6.3) Common Stock in Treasury, at Cost (10,038,827 and 9,030,704 Shares) (65.5) (39.3) -------- -------- 309.5 291.9 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 612.5 $ 537.6 ======== ========
- ---------------- See Accompanying Notes to Consolidated Financial Statements. 6 30 American Management Systems, Incorporated CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 (In millions) 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 56.9 $ 51.8 $ 31.2 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 12.5 17.0 17.9 Amortization 25.1 21.6 16.8 Loss on Investments in Other Companies 4.3 0.7 -- Deferred Income Taxes 5.6 7.8 3.2 Provision for Doubtful Accounts 6.2 10.9 10.6 Provision for Contract Losses 19.7 7.3 (18.5) Changes in Assets and Liabilities: Increase in Trade Receivables (40.6) (30.3) (3.7) (Increase) Decrease in Prepaid Expenses and Other Current Assets (14.0) (0.4) 4.8 Increase in Other Assets (14.6) (10.6) (8.2) Increase (Decrease) in Accrued Incentive Compensation 1.1 31.1 (9.1) Increase (Decrease) in Accounts Payable, Other Accrued Compensation and Liabilities 23.8 26.0 (0.1) Increase (Decrease) in Deferred Revenue 19.6 (2.0) 19.0 (Decrease) Increase in Income Taxes Payable (2.1) 0.3 1.0 -------- -------- ------- Net Cash Provided by Operating Activities 103.5 131.2 64.9 -------- -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Fixed Assets (9.3) (10.6) (15.9) Purchase of Computer Software (7.7) (3.3) (2.3) Investment in Software Products (45.6) (41.8) (31.6) Other Investments and Intangibles (4.5) (2.3) 0.4 Proceeds from Sale of Fixed Assets and Purchased Computer Software 5.6 2.6 0.9 -------- -------- ------- Net Cash Used in Investing Activities (61.5) (55.4) (48.5) -------- -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings -- -- 20.0 Payments on Borrowings (5.4) (7.5) (51.7) Proceeds from Common Stock Options Exercised 14.2 20.9 9.1 Payments to Acquire Treasury Stock (52.9) (21.2) (0.1) -------- -------- ------- Net Cash Used in Financing Activities (44.1) (7.8) (22.7) -------- -------- ------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (5.9) 1.7 (6.9) -------- -------- ------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (8.0) 69.7 (13.2) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 119.3 49.6 62.8 -------- -------- ------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 111.3 $ 119.3 $ 49.6 ======== ======== ======= NON-CASH OPERATING AND FINANCING ACTIVITIES: Treasury Stock Utilized to Satisfy Accrued Incentive Compensation Liabilities $ 5.2 $ -- $ 2.3 Treasury Stock Utilized to Satisfy Stock Options Exercised $ 12.3 $ 4.7 $ --
- ---------------- See Accompanying Notes to Consolidated Financial Statements. 7 31 American Management Systems, Incorporated CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Year Ended December 31, 1999, 1998, and 1997 (In millions)
Common Stock Capital in Currency Total (Par Value Excess of Translation Retained Treasury Stockholders' $0.01) Par Value Adjustment Earnings Stock Equity - ----------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1996 $0.5 $75.0 $(1.1) $157.3 $(28.6) $203.1 Common Stock Options Exercised -- 4.1 4.1 Tax Benefit Related to Exercise of Common Stock Options 5.0 5.0 Currency Translation Adjustment (6.9) (6.9) Common Stock Repurchased (0.1) (0.1) Restricted Stock Awarded 2.3 2.3 1997 Net Income 31.2 31.2 ---- ----- ------ ------ ------ ------ Balance at December 31, 1997 0.5 84.1 (8.0) 188.5 (26.4) 238.7 Common Stock Options Exercised -- 5.3 8.3 13.6 Tax Benefit Related to Exercise of Common Stock Options 7.3 7.3 Currency Translation Adjustment 1.7 1.7 Common Stock Repurchased (21.2) (21.2) 1998 Net Income 51.8 51.8 ---- ----- ------ ------ ------ ------ Balance at December 31, 1998 0.5 96.7 (6.3) 240.3 (39.3) 291.9 Common Stock Options Exercised -- (12.3) 21.4 9.1 Tax Benefit Related to Exercise of Common Stock Options 5.1 5.1 Currency Translation Adjustment (5.9) (5.9) Common Stock Repurchased (52.9) (52.9) Restricted Stock Awarded 5.3 5.3 1999 Net Income 56.9 56.9 ---- ----- ------ ------ ------ ------ Balance at December 31, 1999 $0.5 $89.5 $(12.2) $297.2 $(65.5) $309.5 ==== ===== ====== ====== ====== ======
- ---------------- See Accompanying Notes to Consolidated Financial Statements. 8 32 American Management Systems, Incorporated CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended December 31 (In millions) 1999 1998 1997 - ---------------------------------------------------------------------------------------- NET INCOME $56.9 $51.8 $31.2 OTHER COMPREHENSIVE INCOME (LOSS): Currency Translation Adjustment (5.9) 1.7 (6.9) ----- ----- ----- COMPREHENSIVE INCOME $51.0 $53.5 $24.3 ===== ===== =====
- ---------------- See Accompanying Notes to Consolidated Financial Statements. 9 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES The business of American Management Systems, Incorporated and its wholly-owned subsidiaries ("AMS" or the "Company") is to partner with clients to achieve breakthrough performance through the intelligent use of information technology. AMS is an international business and information technology consulting firm that provides a full range of services: business re-engineering, change management, systems integration, and systems development and implementation. AMS is headquartered in Fairfax, Virginia, with 59 offices worldwide. The Company, which operates as one segment, focuses on the following primary target markets: telecommunications firms, financial services institutions, state and local governments and education, federal government agencies and other corporate clients. A. Revenue Recognition Revenues on fixed-price contracts are generally recorded using the percentage of completion method based on the relationship of costs incurred to the estimated total costs of the project. Revenues on cost reimbursable contracts and time and material contracts are recorded as labor and other expenses are incurred. The Company recognizes revenues on the percentage of completion method for contracts involving software license fees and the provision of significant software modifications and customized services. For all other software license contracts, revenues are recorded upon execution of the contract, provided that all shipment obligations have been met, fees are fixed or determinable, and collection is deemed probable. Revenues from software maintenance contracts are recognized ratably over the maintenance period. On benefit-funded contracts (contracts whereby the amounts due the Company are payable based on actual benefits derived by the client), the Company may defer recognition of revenues until a point at which management can predict, with reasonable certainty, that the benefit stream will generate amounts sufficient to fund the contract. From that point forward, revenues are recognized on a percentage of completion basis. All of the current large multi-year benefit-funded contracts are now being recognized on a percentage of completion basis. When adjustments in contract value or estimated costs are determined, any changes from prior estimates are reflected in earnings in the current period. Any anticipated losses on contracts in progress are charged to earnings when identified. The costs associated with cost-plus government contracts are subject to audit by the U.S. Government. In the opinion of management, no significant adjustments or disallowances of costs are anticipated beyond those provided for in the financial statements. B. Software Development Costs The Company develops proprietary software products using its own funds, or on a jointly funded basis with other organizations, and records such activities as research and development. These software products are then licensed to customers, either as stand-alone applications, or as elements of custom-built systems. The Company accounts for software development costs in accordance with Statement of Financial Accounting Standards No. 86 -- "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed" and for software jointly developed in accordance with Statement of Position 97-2, "Software Revenue Recognition". For projects funded by the Company, significant development costs incurred beyond the point of demonstrated technological feasibility are capitalized and, after the product is available for general release to customers, such costs are amortized on a straight-line basis over a period of 3 to 5 years. For projects where the Company has a funding partner, the capital asset is reduced by the amount collected from the partner. The Company recorded $16.6 million of amortization in 1999, $14.5 10 34 million of amortization in 1998, and $12.5 million of amortization in 1997. Unamortized costs were $106.7 million, $79.1 million, and $51.9 million at December 31, 1999, 1998, and 1997, respectively. In 1999, the Company reduced the unamortized costs by $21.8 million representing collections from funding partners, compared to $14.8 million in 1998. The Company evaluates the net realizable value of capitalized software using the estimated, undiscounted, net-cash flows of the underlying products. The Company capitalizes costs incurred for the development or purchase of internal use software in accordance with Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Once the product is substantially complete and ready for its intended use, capitalized costs are amortized on a straight-line basis over the estimated useful life of the software. The Company expended $102.3 million in 1999, $77.4 million in 1998, and $50.6 million in 1997 for development associated with proprietary software. The Company expensed in the accompanying consolidated financial statements $47.1 million in 1999, $35.4 million in 1998, and $30.7 million in 1997 for research and development associated with proprietary software. C. Fixed Assets, Purchased Computer Software Licenses and Intangibles Fixed assets and purchased computer software licenses are recorded at cost. Furniture, fixtures, and equipment are depreciated over estimated useful lives ranging from 3 to 10 years. Leasehold improvements are amortized ratably over the lesser of the applicable lease term or the useful life of the improvement. For financial statement purposes, depreciation is computed using the straight-line method. Purchased software licenses are amortized over 2 to 5 years using the straight-line method. Intangibles are generally amortized over 5 to 15 years. D. Income Taxes Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates for the year in which the differences are expected to reverse. Deferred income taxes are provided for temporary differences in recognizing certain income, expense, and credit items for financial reporting purposes and tax reporting purposes. Such deferred income taxes primarily relate to the methods of accounting for revenue, capitalized software development costs, restricted stock, and the timing of deductibility of certain reserves and accruals for income tax purposes. A valuation allowance is recorded if it is "more likely than not" that some portion or all of a deferred tax asset will not be realized. E. Earnings Per Share Basic EPS excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and is computed using the treasury stock method. 11 35 F. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The carrying amount approximates fair value because of the short maturity of these instruments. G. Currency Translation For operations outside the United States with functional currencies other than the U.S. dollar, the Company translates income statement amounts at the average monthly exchange rates throughout the year. The Company translates assets and liabilities at exchange rates prevailing as of the balance sheet date. The resulting translation adjustments and gains and losses on intercompany transactions which are long term in nature are shown as a separate component of stockholders' equity. H. Principles of Consolidation The consolidated financial statements include the accounts of American Management Systems, Incorporated and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated. The Company's investments in companies in which it has the ability to exercise significant influence over operating and financial policies are accounted for under the equity method, with the remaining investments carried at cost. I. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Future actual results could be different due to these estimates. Significant estimates inherent in the preparation of the accompanying consolidated financial statements include: management's forecasts of contract costs and progress towards completion which are used to determine revenue recognition under the percentage-of-completion method, management's estimates of allowances for doubtful accounts, tax valuation allowances, and management's estimates of the net realizable value of purchased and developed computer software and intangible assets. J. Foreign Currency Hedging From time to time, the Company enters into foreign exchange contracts as a hedge of intercompany balance sheet transactions. Market value gains and losses are recognized, and the resulting credits or debits offset foreign exchange gains or losses on those transactions when settled. For 1998 and 1997, the Company entered into such short-term contracts with de minimis values. No contracts are outstanding as of December 31, 1999. K. Reclassifications Certain prior year information has been reclassified to conform with the current year presentation. L. Comprehensive Income The Company's principal components of comprehensive income are net income and foreign currency translation adjustments. 12 36 M. Investments The Company's policy is to use the equity method for accounting for investments in companies and other investments in which the Company has significant influence or control, generally this represents common stock ownership or partnership equity of at least 20% or more. Employing this method the Company records the initial investment at cost and subsequently adjusts the carrying amount of the investment to reflect the Company's share of income or loss of the investee and to reflect when applicable any dividends received from the investee. N. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133 entitled "Accounting for Derivative Instruments and Hedging Activities." This Statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The FASB has delayed its effective date for one year to fiscal years beginning after June 15, 2000. The Company will be required to adopt this new accounting standard by January 1, 2001. The Company does not anticipate early adoption of this new standard. Due to the complexity of this new standard, the Company has not completed an assessment of the impact it will have on its financial position or results of operations. The Company currently has no material derivative transactions which would be impacted by this new standard. NOTE 2 -- ACCOUNTS AND NOTES RECEIVABLE
December 31 (In millions) 1999 1998 - ------------------------------------------------------------------------------------------ Trade Accounts Receivable Amounts Billed $236.1 $215.5 Amounts Not Billed 58.4 46.7 Contract Retention 11.0 7.9 ------ ------ Total 305.5 270.1 Allowance for Doubtful Accounts (10.8) (9.8) ------ ------ Total $294.7 $260.3 ====== ======
The Company enters into large, long-term contracts and, as a result, periodically maintains individually significant receivable balances with certain major clients. At December 31, 1999, the ten largest individual receivable balances totaled approximately $108.4 million. No other receivable exceeded $5 million. Management believes that credit risk, with respect to the Company's receivables, is low due to the creditworthiness of its clients and the diversification of its client base across different industries and geographies. In addition, the Company is further diversified in that it enters into a range of different types of contracts, such as fixed price, cost-plus, time and material, and benefits funded contracts. The Company may also, from time to time, work as a subcontractor on particular contracts. The Company performs ongoing evaluations of contract performance as well as evaluations of the client's financial condition. 13 37 NOTE 3 -- NOTES PAYABLE AND CAPITALIZED LEASE OBLIGATIONS Effective January 9, 1998, the Company entered into a syndicated five-year $120 million Multi-Currency Revolving Credit Agreement with Bank of America and Wachovia Bank (the "1998 Agreement") as agents. A term loan (the "Term Loan"), which was funded by Wachovia Bank and Bank of America on January 6, 1997 under a term loan agreement, remains outstanding and is now governed by the 1998 Agreement. The aggregate weighted average borrowings under all revolving credit agreements was approximately $0.4 million in 1999, and $4.5 million in 1998, at daily weighted average annual interest rates of approximately 5.7% in 1999 and 4.9% in 1998. The maximum borrowed under all agreements was $37.8 million in 1999 and $33.8 million in 1998. At December 31, 1999 the Company had no amounts outstanding under its revolving credit facility and $22.6 million in term loans compared to no amounts outstanding under its revolving credit facility and $28.0 million in term loans at December 31, 1998. The Company and most of its existing subsidiaries can borrow funds under the 1998 Agreement in any of the approved currencies, subject to certain minimum amounts per borrowing. Interest on such borrowings will generally range from LIBOR plus 12.5 basis points to LIBOR plus 45 basis points, depending on the ratio of total debt to EBITDA. The Company must also pay a facility fee ranging from 12.5 basis points to 20 basis points of the total facility, based on the same performance measure. Based on such measures at December 31, 1999, interest payments during 2000 will be based on LIBOR plus 12.5 basis points and t